China’s authorities have taken a shock decision to let the yuan - also known as the renminbi - slide by close to 2pc against the US dollar as they try to fend off slowing growth.

The resulting fall is the biggest one-day drop in the currency’s value since January 1994.

So why has China decided on this surprise move?

It wants to stimulate growth

China has had a torrid time of late: its stellar growth has slowed down and its stock market has been in turmoil for the last few months, with stocks plunging by 32pc after a high earlier this year.

According to data released over the weekend, exports and factory gate prices both collapsed in July. China watchers were expecting a prompt response from the authorities - but a currency devaluation was not anticipated.

The official explanation provided by the People’s Bank of China (PBoC) on Tuesday stated that the move was a “one-off” adoption of a market-based approach to setting the yuan's value.

But to many, the decision looks an awful lot like an attempt to stimulate the economy.

Sean Yokota, head of Asia strategy at Nordic corporate bank SEB, said that growth fears were one of the main reasons for the intervention. The currency’s strength was putting pressure on exporters, hampering output and most likely employment too, therefore it needed to fall.

David Fuller's view

Here is a PDF of The Telegraph article.

Of course China wants to stimulate economic growth.  The Communist Party’s unchallenged and unlimited rule depends increasingly on sound economic performance which largely meets public aspirations. 

Consequently, we can be reasonably certain that China’s government will do everything that it reasonably can to stimulate the economy, preferably without creating more bubbles.